Climate Law Update: Climate Change & Sustainable Energy News : Thelen Reid Law Firm : Renewable Energy, Construction, Project Finance Lawyers & Attorneys

Carbon capture and sequestration, as the process is known, involves injecting carbon dioxide, a chief greenhouse gas produced by burning fossil fuels, into underground formations to prevent it from reaching the atmosphere.

Promoted heavily in some quarters, the technology has become controversial with environmentalists, partly because of its association with coal. Just this week, the environmental group Greenpeace issued a scathing critique of the technology's use in conjunction with coal, concluding it won't be available in time to save the planet's climate and could consume up to a 40 percent share of a power plant's capacity (see press release here; access report here).

The California project will be located at a plant near Bakersfield operated by Clean Energy Systems. Late last year, the company described the operation as using either natural gas or synthetic gas derived from coal (see text of press release here). Carried out under the auspices of the West Coast Regional Carbon Sequestration Partnership, a public-private partnership partially funded by the energy department, about a million tons of compressed carbon dioxide is expected to be pumped into a geologic formation more than a mile underground.

Adam Gottlieb, a spokesman for the California Energy Commission, which manages the regional partnership,  said he did not believe the plant, expected to be in operation by mid-2010, would rely on coal as a fuel source. The commission's statement suggested that the technology could also be used by industries such as cement plants and refineries. 

"If we can have other industries embrace this technology, not only for economic reasons but for environmental reasons, it's a win-win all around," he told Climate Law Update. 

Keith Pronske, Clean Energy's chief executive officer, told Climate Law Update his plant, which relies on aerospace technology, would likely use natural gas but could rely on other fuels, including renewables.

"What we're focused on is the carbon capture part and it's to have clean energy with captured carbon dioxide from a multitude of fuels," Pronske said. He said carbon dioxide could also become a commercial commodity, sold to be injected under old oil fields as a way of increasing their productivity.     

In the other project, to be carried out by the Midwest Regional Carbon Sequestration Partnership, another million tons of the gas is expected to be injected into a sandstone formation in Ohio about 3,000 feet under an ethanol production facility. That project is slated to get about $61 million. Both projects also anticipate additional millions of dollars coming from industry. 

The projects are the fifth and sixth to be funded by the department in the current phase of its  carbon sequestration program involving the regional partnerships. In addition to promoting at clean coal, the department said the technology would help meet President Bush's recently stated goal of stopping the growth of greenhouse gas emissions by 2025 (see Climate Law Update story here). 

Regarding FutureGen, the energy department in January backed away from its original plan to spend upwards of $1 billion to build a virtually zero-emissions power plant, eventually slated for a site in Illinois (see press announcements here and here). Under the new program, the department outlined a plan to solicit proposals for multiple plants, toward which the government would supply between $100 million and $600 million per project. About $1.3 billion is anticipated to be available over the years, the department estimated.

One goal of the government's overall effort is to reduce the whopping $100- to $300-ton cost of the technology (see DOE background information here).

(Photo: Artist's conception of hypothetical FutureGen plant, Department of Energy) 

The report noted that many in the industry favor free allocations, as a way of reducing the costs of complying with carbon dioxide reductions. But discouraged that approach, warning of potential excessive profits and noting the "overly generous" allocations under the first phases of Europe's trading system. 

With electric power generation responsible for about 40 percent of the nation's carbon dioxide emissions, or about 2.7 billion tons annually, according to the report, the industry has a big stake in the outcome of any legislation.

The issue is not confined to the federal level. In states such as California, which is contemplating a cap-and-trade program to help the state meet the demands of its groundbreaking AB 32, regulators are also wrestling with the subject. California officials are expected to make a recommendation on the allocation question this summer (see Climate Law Update story here).    

Under Lieberman-Warner, credits covering about 45 percent of the emissions would be distributed for free in 2012, according to the report, while another 573 million tons worth would be handed out to distribution companies. Those allowances would then be auctioned off to raise money for energy efficiency programs or to provide customer rebates. The Bingaman-Specter bill, on the other hand, would provide about 80 percent of the allowances for free in 2012.

At a hypothetical value of $10 a ton -- no one really yet knows how much the credits would be worth -- the value of the free credits allocated to the 100 largest utilities under the Lieberman-Warner approach would be about $10.4 billion. That comparable figure under the competing measure would be more than $18 billion.

Restricting the amount of free credits is clearly favored by at least one sponsor of the report, the Natural Resources Defense Council. In a statement accompanying the release of the assessment, Dan Lashof, science director of the environmental group's climate center said (see full text of statement here):

"Billions of dollars in allowances are at stake under the proposals to cap and reduce global warming pollution. The value of pollution allowances should benefit consumers and smart programs that deliver real pollution reductions, not polluters." 

Along with the NRDC, the report was sponsored by Ceres, a coalition of investors and environmental groups, as well as two utilities, Pacific Gas and Electric Company and Public Service Enterprise Group of New Jersey.

The report also shows stark differences between utilities based on whether credits are distributed based on the utility's emissions, or its electricity output. The emissions-based method would "penalize companies that have invested in low- and zero-carbon technologies in advance of the cap-and-trade program," the report noted.

Under an emissions scenario, the Southern Company, described by the Wall Street Journal's online site Environmental Capital as "coal heavy," would get $600 million in credits under the proportions outlined under the Lieberman-Warner bill, as opposed to $734 million if the allowances were doled out based on emissions.

For a company such as Northern California's PG&E, reliant on hydro, nuclear, natural gas and renewable generation, the differences would be even more dramatic. The company would get as little as $2 million to $4 million in allowances under the emissions scenario but receive between $99 million and $174 million if allocations were based on output, according to the report.

On a somewhat different subject, the report made another fairly startling point: Since 1990, overall carbon dioxide emissions from power plants have gone up by 29 percent; but emissions of other pollutants, including sulfur dioxide and nitrogen oxide, have dropped more than 40 percent. The difference, suggested the report's authors, was that the latter two pollutants are regulated under the Clean Air Act, while carbon dioxide has not been.      

 (Photo: Lake Almanor, California, part of PG&E hydroelectric system; Wikipedia)

Backers of the Kansas bill had noted that it included other provisions that could have boosted other elements of the state’s renewable industry. Builders of the project also included plans for a bioenergy center that would capture some of the carbon dioxide and used it to grow algae for fuel.

But in her public statement and veto message, Sebelius cited not only the threat of climate change to her agricultural state but also the potential for federal legislation, which she did not specifically name, that would “have the net impact of taxing carbon.” That description could apply to proposals such as the Lieberman-Warner bill that would establish a cap-and-trade program for greenhouse emissions. Sebelius said the new plants permitted under the Kansas bill would have produced 11 million new tons of carbon every year. Building new coal plants “is likely to create a significant economic liability for Kansas in the future.”

She also had this to say about wind generation:

“I am encouraged that the Legislature made a modest attempt to address some of our alternative energy assets, but this bill fails to promote our wind assets and sends the wrong signal to potential investors for transmission lines and additional wind power.

“The new feature of net-metering does not include wind power which could have served as a powerful incentive to individuals and communities to embrace our most abundant natural resource.”

Sebelius also signed an executive order (see text) creating a new advisory group to explore strategies for reducing greenhouse emissions and protecting the economy. She named Jack Pelton, president of Cessna Aircraft Company, to head the group.

In a statement, Earl Watkins, president of Sunflower Electric Power Corporation, one of the companies that had hoped to build the 1,400-megawatt project, said the veto would “unnecessarily raise electric rates” for the state’s residents (see project description).

“We are experiencing significant growth on the Sunflower system, and we must add new coal generation to support our existing natural gas and wind generation assets,” Watkins said.

The Utah conflagration brewed up over the EPA's issuance last August of a permit allowing Deseret Power Electric Cooperative to add a 110-megawatt unit to its existing Bonanza power plant. Such "prevention of significant deterioration" permits are issued for larged stationary facilities. The decision came just months after the U.S. Supreme Court weighed in on the issue of the EPA’s authority to regulate greenhouse emissions in its Massachusetts v. EPA decision. Although the court held that greenhouse gases could be regulated as air pollutants, the EPA has yet to decide what to do.

Citing that ruling, which came in the context of a dispute over automobile emissions, the environmentalists including the Sierra Club appealed the decision through the agency’s internal processes. Those groups claim the EPA must establish new controls on carbon dioxide emissions for the project. From the Sierra Club brief (see text here):

“On April 2, 2007, the Supreme Court held that carbon dioxide and other greenhouse gases are ‘pollutants’ under the Clean Air Act. Massachusetts v. EPA, 127 S.Ct. at 1460. Now having been definitively ruled a pollutant, [carbon dioxide] is accordingly a regulated pollutant under the act and EPA is required to impose [carbon dioxide best available control technology] emission limits in the Bonanza [prevention of significant deterioration] permit.”

The EPA, however, has maintained that carbon dioxide “is not currently a pollutant regulated" under the federal Clean Air Act. In its response to the appeal, the agency cited a 1993 memorandum in which its attorneys concluded carbon dioxide was not subject to the EPA’s regulatory authority.

Last week, a coalition of trade groups representing a cross-section of energy and manufacturing, weighed in against the environmentalists’ position. In a brief (see text here) to the EPA the groups argued that the Supreme Court decision addressed only the government’s authority to regulate emissions from new motor vehicles. A finding requiring them to be covered for facilities such as Utah’s, they argued, would cause “a huge expansion of the number of sources and activities” that would require permits, which officials would not have the resources to process.

Quentin Riegel, deputy general counsel for the National Association of Manufacturers, one of the groups filing the brief, in a statement predicted “an impassable regulatory gridlock” would develop if the Sierra Club won.

But the environmental groups also had powerful allies. In another brief, eight states, including California, New York and Massachusetts, backed the environmental groups. They argued that the Supreme Court ruling “conclusively” established the EPA’s authority to regulate greenhouse emissions for the project and that the 1993 interpretation “did not survive” the court ruling.

See the EPA’s docket, with links to all the filings in the matter, here.

(Official press photo: Gov. Kathleen Sebelius)

Wind is rapidly taking off in many countries, according to other estimates, including a worldwide assessment produced by the Renewable Energy Network for the 21^st Century (REN21) and previously cited by Climate Law Update.  That document estimated wind power capacity increased by 28 percent worldwide in 2007, more than any other renewable technology.

At any rate, there were some who noted the additional demand the rapid development of the technology could put on supplies of vital components. For instance, Environmental Capital, an online news service of the Wall Street Journal, noted that China relies on imports for vital wind turbine parts, including ball bearings. That means country’s appetite for wind “will just add pressure to already stretched global supply chains, likely increasing turbine prices and thus capital costs for new wind farms everywhere.”

Another bit of evidence for the worldwide ripple effect that renewable energy development could exert came from Clean Edge Inc., a West Coast research company. Clean Edge, citing another research firm, New Energy Finance, reported comments from a high-ranking European Union official that the EU might have to import biofuels from elsewhere. The EU has a target of 10 percent biofuels in all of its transportation fuels by 2020, according to the report.

“If we cannot produce what we need using first and second-generation biofuels we will have to import more biofuels from abroad,” Mariann Fischer Boel, EU commissioner for agriculture and rural development, said at a conference in Brussels, according to the report, which can be viewed here.

(Photo of wind power plants in Xinjiang, China, via Wikipedia) 

Some of the reasons for the change, according to the report, included an 8.1 percent increase in the amount of electricty generated by renewable power sources, such as hydroelectric plants, which themselves boosted production by some 7 percent. However, there was a touch of irony in other findings. For instance, the EPA reported that warmer winter weather helped contribute to the trend:

"This decrease [in carbon dioxide emissions] is primarily a result of the restraint on fuel consumption caused by rising fuel prices, primarily in the transportation sector, an increase in the cost of electricity, and decreases in the cost of natural gas. Additionally, warmer winter conditions in 2006 decreased the demand for heating fuels."

The report goes on to say that the winter "was significantly warmer than usual" but that summer temperatures were cooler than normal. 

The report also noted that 2006 emissions of carbon dioxide from burning fossil fuels was still 19 percent above the 1990 baseline. Overall greenhouse tonnage has increased by more than 14 percent during that time, while the nation's economy has grown nearly 60 percent, according to the EPA. According to a chart in the report, 2001 was the last year carbon dioxide emissions dropped compared to the year before.

Among other intriguing highlights in the mass of figures: carbon dioxide emissions from coal-fired electricity generation declined by 1.3 percent from a year earlier but those from petroleum generation plunged by a whopping 45.5 percent. It was not immediately clear what drove the large decrease in emissions from petroleum-fired generation. Meanwhile, emissions from natural gas generation climbed by more than 6 percent. 

Compiled in collaboration with other federal agencies, the document was published in the Federal Register on March 7, triggering a 30-day comment period. Eventually, the report will be submitted to the Secretariat of the United Nations Framework Convention on Climate Change.

(Photo: Bonneville Dam hydroelectric project, Columbia River, Oregon and Washington; Wikipedia photo)